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PAC urges HMRC to step up dialogue with Treasury over CHIEF funding

David Bicknell Published 14 November 2017

Watchdog wants HMRC to obtain additional funding required to ensure that new CDS system can deal with potential increase in volumes, and that an adequate fall-back option is in place

 

HM Revenue & Customs’ (HMRC) customs system replacement plans have been dealt no favour by Brexit.

But the Public Accounts Committee (PAC) is not prepared to allow HMRC to use Brexit as an excuse for any problems in replacing its long-standing Customs Handling of Import and Export Freight (CHIEF) system with its new Customs Declaration System (CDS).

And, in a report published today, it urged HMRC to step up the urgency of its conversation with the Treasury to get the £7.3m of funding needed to upgrade CHIEF to be able to deal with the potential 255m declarations that could be made each year. 

The PAC said, “The existing CHIEF system is its main contingency option, but we are surprised to hear that HMRC and HM Treasury (HMT) are still only ‘in  Brexit and the future of Customs  conversation’ over the £7.3m needed to upgrade CHIEF.”

The committee added, “In the context of the CDS programme, this would seem a relatively small sum to pay to guard against the wider financial and reputational costs of failure. It (HMRC) needs to progress this work urgently and obtain the additional funding required, to ensure that CDS can deal with the potential increase in volumes, and that an adequate fall-back option is in place in case this is delayed.”

It recommended that the Treasury should ensure that HMRC has sufficient funding by December 2017 to increase the capacity of CDS to handle 255m customs declarations each year, and to develop functioning contingency arrangements.

An announcement to that effect could reasonably be expected to come in next Wednesday’s Budget.

The committee said, “Under current plans, the UK is set to leave the European single market and the customs union in March 2019. It would be catastrophic if HM Revenue & Customs’ new customs system, the Customs Declaration Service, is not ready in time and if there is no viable fall-back option.

“In 2015, around 55m customs declarations were made by 141,000 traders. The UK’s exit from the EU could see the number of customs declarations which HMRC must process each year increase five-fold to 255m. A failed customs system could therefore lead to huge disruption for businesses, with delays potentially causing massive queues at Dover and resulting in food being left to rot in trucks at the border.

“The uncertainty regarding the outcome of UK-EU negotiations is a complicating factor but it should not be used by HMRC to avoid taking action now in areas including: scaling up the CDS service to handle 255m declarations; ensuring a viable contingency option is in place well before January 2019; and communicating with traders.

“There are financial as well as operational implications of not acting now. This is a tight timetable at the best of times. With the hard deadline of Brexit, delay is not an option.”

The PAC warned the Treasury that it needs to ensure there is funding in place to develop contingency options so that there are no barriers to continuity of service. HMRC, it added, also needs to do a lot more to work with the many businesses affected.

HMRC started planning to replace CHIEF in 2013–14, well before the EU Referendum following changes to EU legislation which would have been costly and difficult to make on CHIEF’s ageing technology. However, it maintains that the CDS programme is on track and is well governed, but it admits that major risks remain, which means that CDS might not be fully operating by the planned date of January 2019.

The depoartment has highlighted four major risk areas: integrating the eight CDS system components; testing CDS to ensure it can correctly handle the potential increase to 255m declarations every year; migrating traders from the existing CHIEF service to CDS; and ensuring that users are ready to make customs declarations in the new system.

The PAC report said that HMRC will only know by July 2018 whether the system works as intended, which is only one month before the first traders start to use it, and gives very little time to take remedial action if anything goes wrong.

In its recommendations, the PAC also urged HMRC to manage the “huge uncertainty” faced by a large number of traders.

It said that HMRC’s latest estimate is that 132,000 traders will have to make customs declarations for the first time once the UK leaves the EU. Although HMRC has engaged with some larger traders and representative groups, it only plans to start wider engagement with all traders after March 2018.

The PAC said, “We are not convinced why HMRC could not lay the foundations now for this engagement with all traders to give them as much time as possible to prepare and to allay fears. HMRC could, for example, update regularly the information it provides to traders on its website which we have been told has not been updated significantly since 2014. There are 141,000 traders that currently use the Customs Handling of Import and Export Freight system (CHIEF) but only 604 of these are ‘trusted traders’. This compares to over 6,000 trusted traders in Germany.”

It urged HMRC to ensure that traders are informed of the CDS timeline and progress by January 2018. As part of its plans to broaden engagement with traders, it should also promote the benefits of obtaining trusted trader status and aim to increase the number of registered traders, the PAC said.

It also urged HMRC to ensure that the CDS system and the CHIEF contingency option are capable of managing 255m customs declarations every year, while providing the flexibility to meet the wider challenges of an integrated customs and trade system for the UK, such as managing changes to tariffs, free trade agreements and international trade quotas.

 








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